The Bank said it would change interest rates "by as much as needed" when it meets in November. Photo: AFP
The Bank of England has said it will "not hesitate" to hike interest rates to curb inflation after the pound fell to a record low against the US dollar.
The Bank decided not to hold an emergency meeting to set new rates but said it would change them "by as much as needed" when it meets in November.
It came as the Treasury said it will set out plans to cut debt in November in a bid to reassure investors.
The pound fell again after the statements from the Bank and Treasury.
Sterling fell close to an all-time low earlier after Chancellor Kwasi Kwarteng said he planned further tax cuts, but started to recover during the day.
The government said its financial plan on 23 November will have full growth and borrowing forecasts from independent forecaster the Office for Budget Responsibility.
It also pledged to set out further details on the government's fiscal rules, including how it will try to decrease debt.
Some economists had predicted the Bank of England was going to call an emergency meeting in the coming days to raise rates and help stem the fall in the pound as well as calm high inflation.
It followed a steep drop in the value of the pound against the US dollar as global markets reacted to the sharp increase in government borrowing required to fund the biggest tax cuts in 50 years outlined in Friday's mini-budget.
A weak pound makes it more expensive to buy imported goods and risks pushing up inflation. Imports of commodities priced in dollars, including oil and gas, are also more costly.
The Bank of England said it was "monitoring developments in financial markets very closely", but said it would "make a full assessment at its next scheduled meeting of the impact on demand and inflation from the government's announcements, and the fall in sterling".
New Zealand dollar falls
The Kiwi has fallen 19 percent against the US dollar in the past six months, and on Monday morning was trading at 56.30 US cents having dropped another cent in overnight trading.
ASB chief economist Nick Tuffley said the drop reflected fear in markets globally, and mounting concern over the UK's fiscal position and its potential debt levels after the tax cut announcement.
Safe haven currencies such as the US dollar, Swiss franc and Japanese yen tended to strengthen during periods of global uncertainty, he said.
"When you've got weak growth, we've got financial positions around the world all in a weaker state than what they were - large deficits because of Covid - and concern that this could make the deficit that much more challenging to turn around," he told RNZ's Morning Report.
"What we're seeing right now is a reflection of a bit of fear in markets" - ASB chief economist Nick Tuffley
In the shorter term the fall in the New Zealand dollar could make imported goods more expensive, and over the next year inflation may fall a bit more slowly than it would have otherwise.
The Reserve Bank of New Zealand will continue to raise interest through to the end of the year and possibly in the early part of next year, he said.
- BBC / RNZ